Marx's Critics
Paul then goes through some of the standard criticisms and rebuttals of The Labour Theory of Value, such as its not necessary as opposed to just looking at the facts of economic data; its purely metaphysical; it doesn't deal with the actual prices that commodities sell at and so on. Paul responds to them in turn that the theory enables us to do more than just observe and describe surface phenomenon. It enables us to explain what is beneath those phenomenon, and creates the dynamic for the systems operation, and the basis of change. The theory is no more metaphysical than the marginal utility theory used by all orthodox economists. Indeed it's less so. And, Marx did set out a basic outline of the way competition between capitals, to obtain the highest annual rate of profit, leads to the formation of an average rate of profit, so that commodities sell at prices of production rather than their exchange values, and so how his law of a falling rate of profit explains market prices, and the allocation of capital.
On this latter point, Paul is rather weak. He accepts the claim that Marx’s theory was internally inconsistent, and compounds that error by arguing that the Temporal Single System Interpretation removes those supposed inconsistencies. This is not the place to discuss the errors of the Temporal Single System Interpretation, and associated issue of the use of historic prices, which I have dealt with extensively in other posts. I will simply reiterate the the point that there is no inconsistency in Marx's initial formulation. He makes clear that his formulation was not complete, and would not have been his last word on the matter; he makes clear that outputs are simultaneously inputs, and so input prices must be transformed alongside output prices for a complete solution; he makes clear that such a solution also impacts the price of wage goods and so the rate of surplus value and rate of profit; he makes clear that consumed capital must be physically reproduced on a “like for like basis”, so that the value of that capital, i.e. its current reproduction cost, is the basis of the rate of profit, not the historic price paid for it.
Furthermore, it's clear that, at any time, there is no single system of prices, because some commodities sell at prices of production, and some at modified exchange values, i.e. their inputs are bought at prices of production, but their outputs may be sold at prices equal to this modified exchange value – c + v + s, rather than c + v (k) + p.
Its true, as Paul says, that the process of formation of the price of production takes place over time, but that, in itself, demonstrates why the calculation of that price of production involves the simultaneous transformation of both input and output prices. In other words, the price of production is itself an abstraction. It says, if this iterative process proceeded, within a closed system, what would be the stable state, if any that resulted?
Unless the price of production of commodities is determinable, there is no way of knowing whether any progress, over time, is moving towards any such solution or not. The process that occurs over time is precisely that capital moves away from those spheres where the annual rate of profit is lower than the average, and towards those where it is highest. However, as I've set out elsewhere, that very fact means that, within a closed system, there is no guarantee that a stable state solution can be achieved.
In order to reduce prices in one sphere, to the price of production, might require a transfer of more capital from other spheres than is required to raise their price to the price of production. The movement of these market prices, in response to the increase or reduction in supply, depends on the price elasticity of demand in the respective spheres.
As Marx also sets out, where wage goods are more expensive, on the basis of prices of production, than as exchange-values, this means that the value of labour-power rises, and so surplus value and rate of profit falls. The same applies to where wage goods become more or less expensive as a consequence of changes in their price of production. In other words, the reality is far more complex than Paul suggests here. Marx's solution is not inconsistent, but like most of his work, it is incomplete. Rather, as Marx demonstrates with the followers of Ricardo, like McCulloch, who sought to deal with the criticism of his theory, the Temporal Single System Interpretation deals with the criticisms of Marx's theory by essentially abandoning it, and undermining it.
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